KARACHI: Institute of Chartered Accountants of Pakistan (ICAP) has recommended that present Badla or Carry-over Transaction of shares at the stock exchanges should come under the purview of taxation laws of the country.
ICAP has ruled that CoT is a Repo transaction keeping into relevant paragraphs of two international accounting standards numbers 18 and 39.
ICAP sources said that the policy makers of the country sent a reference to ICAP on the issue of CoT. ICAP replied “the appropriate committee of institute has examined all aspects of the query regarding Carry-Over Transactions (CoT) and is of the view that CoT is a Repo transaction as substance of the transaction and not its form should be considered and accordingly it should be treated as financing transaction in the books of accounts”.
ICAP has further ruled “the aforesaid clarification provides the accounting treatment for CoT under international accounting standards (IAS)”.
However for the purpose of other status, the transaction would have the effect according to relevant provisions of the law.
Karachi Stock Exchange (KSE) enforced the CoT regulations from January 11, 1993 after a detailed study conducted by USAID with regard to the then prevailing UN-regulated shares business. USAID study recommendations are still to be implemented by SECP.
Sources said ICAP referring to these CoT regulations and quoting relevant portion of IAS-18 and IAS-39 itself framed a question that “keeping in view the above practice and the form as well as substance of CoT a question has arisen whether CoT is a repo or not”.
The reply of ICAP was in response to this framed question. According to a press note issued by SECP on December 8, SECP and SBP coordination committee met in Islamabad to review the margin financing and phasing out of CoT and observed “all stakeholders were on board for the phase-out”.
According to the press note, SECP has restricted CoT trading to 24 scrips and five scrips have already been phased out as per plan.
Meanwhile, in its latest report world’s leading corporate and tax consulting company PriceWaterHouseCoopers has said that India has followed Pakistan in imposing tax on share trading.
The report states that the Indian tax authorities have imposed advance tax on share, derivatives, mutual funds and CoT transactions, with effect from October 1, 2004. The tax called Security Transaction Tax is delivery based.
The report said that sale and purchase of an equity share in a company or unit of a equity oriented mutual fund in delivery based transaction on a recognised stock exchange will be taxed at the rate of 0.075. Sale of equity share in a company or unit of an equity oriented mutual fund through transaction settled otherwise than by actual delivery, on a recognised stock exchange will not be taxed but buyer will pay tax at the rate 0.015 per cent.
Sale of derivative on a recognised stock exchange will not be taxed but the buyer will pay 0.01 per cent.
Sale of unit of equity oriented fund to the mutual fund will not be taxed but buyer will pay tax at the rate of 0.15 per cent.